The Central Bank of Nigeria on Wednesday said risk management practices among financial institutions in the country was still at a ‘rudimentary stage.’
The Deputy Governor, Financial System Stability, Dr. Kingsley Moghalu, in a keynote address at the Moody’s Analytics 2nd Annual West Africa’s Risk Management Conference in Lagos, said risk management in the banking sector was still beset by a number of challenges, including acute dearth of knowledgeable and skilled professionals, especially at senior level.
Moghalu said this was further exacerbated by the pervasive poor knowledge of risk management by members of the board of many banks, as revealed by the result of the diagnostic study commissioned by the CBN in the wake of the banking sector crisis in 2009.
As a result, the CBN deputy governor emphasised the need for competency development in the sector, raising the profile of risk management function in banks, and availability of risk infrastructure.
He said, “Although there is noticeable improvement in risk management practices across the banks particularly following the CBN intervention in 2009 and the subsequent reform measures, risk management practice in the Nigerian financial services industry is still at a rudimentary stage beset by a number of challenges, chief among which is the acute dearth of knowledgeable and skilled risk professionals, particularly at senior level.”
As part of the holistic efforts to address the dearth of skills in the banking industry, Moghalu said the CBN in conjunction with the Bankers Committee recently issued a competency framework expected to support the development of skilled and capable workers in the industry, including risk management area.
He recalled that a recent baseline survey to assess compliance with the framework revealed an acute skills gap in banks’ risk management functions which needed to be urgently addressed.
According to him, the power and influence of the risk function is generally being elevated in many countries, particularly in the aftermath of the global financial crisis.
He said, “As we seek to take risk management practice in Nigeria to the next level, there is the need to raise the profile of the risk management function in financial institutions. We need to key-in to emerging global trends by raising the stature and organisational influence of the chief risk officers.”
The CBN deputy governor, however, said for many banks’ risk managers, the number one risk that kept them awake at night was credit risk, noting that “a bank tends to lose money the old fashioned way – they lend it!”
But Moghalu pointed out that recent global surveys of bankers, banking regulators and close observers of banks revealed that the scenario had changed, adding that emphasis was now being placed on macroeconomics risks.
He said, “For example, the February 2012 bi-annual Banana Skins publication reported that in the opinion of respondents from 58 countries (including Nigeria), the number one risk facing banks is now macro-economic risk. In their estimation, the fragility of the world economy with the possibility of a return to recession poses the greatest risk to the banking industry in these turbulent times. In that study, credit risk has been relegated to the number two spot. This is particularly instructive for Nigerian banks in view of recent developments in the global economy that have implications for the Nigerian economy, such as the Euro-zone crisis, slow down in China, Shale oil discovery in the US and the attendant reduction in demand for Nigeria’s crude, new oil discoveries in other countries.”
The Senior Director, Europe, Middle East and Africa, Sales, Moody’s Analytics, Mr. Peter Knowles, in his presentation, highlighted the latest trends in risk management across West African region.
He explained various models and ratings banks could use to examine their risk positions.